False Marking Qui Tam Provision Found Unconstitutional
As has been widely reported, there has been an influx of false marking cases hitting the courts over the past year based on 34 U.S.C. Section 292, the False Marking Statute. That statute, loosely translated, makes it an offense to mark a product or use in advertising a patent number or the words "patent," "patent pending," or any other indication that a patent applies to a product when it in fact does not. This includes situations in which a company for years correctly marked a product with a patent number, but then continued so marking the product after the expiration of the patent. The statute states that a person responsible for such an offense shall be fined not more than $500 for every such offense.
The statutory language also includes a somewhat uniquely simplistic qui tam provision providing that "Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States." While the qui tam provision of the False Marking Statute was enacted in 1952, the 2009 Forest Group , Inc. v. Bon Tool Company decision made the qui tam actions more financially lucrative—and set the groundwork for a cottage industry of false marking litigation—by holding that violators of the False Marking Statute face a $500 fine for each article improperly marked rather than a $500 fine for a single decision to improperly mark multiple articles.
The February 23, 2011 decision in Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. —holding that the False Marking Statute's qui tam provision violates the Appointments and Take Care Clauses of the United States Constitution—could have a chilling effect on the recent rash of false marking cases. In an interesting opinion, Judge Dan Aaron Polster of the US District Court for the Northern District of Ohio briefly explains the history and rationale behind qui tam provisions, which "can reasonably be regarded as effecting a partial assignment of the Government's damages claim" such as in the case when an "assignee of a claim has standing to assert the injury in fact suffered by the assignor."
Judge Polster also explains the purpose behind the Take Care Clause of Article II of the Constitution which provides that the President "shall take care that the laws be faithfully executed." Judge Polster cites precedent in explaining that the Take Care Clause requires that the Executive Branch retain sufficient control over a qui tam claim to "ensure that the President is able to perform his constitutionally assigned duty to take Care that the Laws be faithfully executed." In applying the "sufficient control" analysis to the False Marking Statue (which Judge Polster suggests "is unlike any statue in the Federal Code with which this Court is familiar"), Judge Polster notes that "[a]ny private entity that believes someone is using an expired or invalid patent can file a criminal lawsuit in the name of the United States, without getting approval from or even notifying the Department of Justice" and "[t]he case can be litigated without any control or oversight by the Department of Justice. " Given the lack of a requirement of Department of Justice notification, government oversight or right to intervene, stay discovery, dismiss the action, or involve itself in a settlement, the qui tam provision was found by the court to be in violation of the Appointments and Take Care Clauses of the United States Constitution. Judge Polster bolsters his opinion with a final critique with which defendants of False Marking cases would no doubt agree:
The danger of this uncontrolled privatization of law enforcement is exacerbated by the financial penalties in this statute. The penalty is up to $500 for each article falsely marked. Forest Group, 590 U.S. at 1302-1303. Depending upon the number of items, this could be a staggering amount of money or a trivial amount. The statutory penalty is not calibrated to the size or economic strength of the defendant, the significance of the product, or to the degree of competitive harm the false marking may have had beyond simply the gross number of articles falsely marked. See Id. at 1303 (“[t]he more articles that are falsely marked the greater the chance the competitors will see the falsely marked article and be deterred from competing”). It is therefore essential that the government have control over when such cases are brought, and most importantly, how they are settled. Such decisions should be made by government attorneys who have no financial stake in the outcome of the litigation or settlement, not by private parties motivated solely by the prospect of financial gain.
